You may have heard the expression, ‘When America sneezes, the world catches a cold.’
Well, in the first two weeks of the New Year it hasn’t been America that has ‘sneezed,’ but the Chinese stock market – and with China now arguably the world’s largest economy, the effects have been felt around the world.
Unsurprisingly, many of our clients have contacted us to seek reassurance: so let’s try and put the events of the past two weeks into some sort of longer-term perspective.
Hopefully, this will answer some of your questions and alleviate the understandable concerns you may have.
1 – There are clearly worries about the Chinese economy: it ‘only’ grew by 6.9% last year, the slowest rate of growth for 25 years. But that is still growth, and it is still way above the levels that Western economies would consider a major success.
2 – Those concerns meant the Chinese stock market had a volatile year in 2015. The Shanghai Composite index started the year at 3,235 and ended it at 3,539 for a perfectly acceptable rise of 9.4% – but along the way there was a high of 5,166 and two months later a low of 2,927. In simple terms, the Chinese market is volatile.
3 – It’s also important to remember that China is a long way from being the only engine of global growth. The US economy continues to grow steadily; Germany remorselessly records a trade surplus every month, and the fastest growing economy in the world is now India, not China.
4 – Undeniably though, stock markets fell heavily in the first two weeks of 2016 but headlines today are saying: ‘Asian stocks continue global recovery’ and ‘US and European stocks rebound.’
5 – Stock markets have undoubtedly overreacted. As Bob Greifeld, the head of the US Nasdaq exchange said:
“The recent turmoil is an overreaction. Once the emotion has left the market, you’re left with businesses doing reasonably well. How did the low oil price turn into bad news [for business?] and China’s growth may be disappointing, but it’s still growing.”
6 – It’s important to remember that markets fall and rise. That’s what they do and that’s why investing and saving is a long-term commitment. This is a point stressed over and over again by Warren Buffet, the most successful investor of the last 50 years. As he says, ‘Our favourite holding period is forever.’
7 – No-one – not even Warren Buffet – times markets perfectly. It’s impossible to always ‘buy at the bottom and sell at the top.’
8 – Although stock markets have fallen, it’s important to remember that very few of our clients are 100% invested in equities. At times like this, diversified portfolios – and the long term financial plans we’ve put in place for you – will really prove their worth.
We hope that the above points will go a long way to reassuring you that the best course of action is to ‘keep calm and carry on.’
However, if you want to discuss the points we’ve made – or any details of your savings and investments – then don’t hesitate to get in touch with us.
